The Nation; For a Key to Economic Health, See the 'Help Wanted' Ads

By LOUIS UCHITELLE

Published: March 10, 1991

FOR days, there were signals that the recession might be lifting. New figures showed that factory production rose a bit in February. The war's end suggested that consumers would soon be in a spending mood again. The stock market boomed, and home sales even began to rise. But then on Friday, the Labor Department dashed these incipient hopes, announcing in effect that the recession's end was not in sight after all.

When it comes to spotting an upturn in the economy, the Labor Department's monthly employment numbers outweigh all other data. No matter how favorable the other economic indicators, a recession isn't over, most economists agree, until jobs increase -- or at least stop disappearing by the tens of thousands. And last month 208,000 jobs disappeared in the private sector, mostly because of layoffs. The unemployment rate, as a result, swelled to 6.5 percent from 6.2 percent.

Perhaps no forecaster has been more optimistic in recent weeks than Edward Yardeni, chief economist at Prudential-Bache, the Wall Street investment house. He insists that the recession is on the verge of ending. Still, the February job loss jolted him. "Employment is the make-or-break number for anyone's forecast," Mr. Yardeni said, "and if you get a really bad number like February's, then you might just as well take the rest of the month off while you hope for a better figure for March."

The economics that make the job figures so important are simple enough. If jobs are disappearing and incomes with them, then people cannot afford the spending that reawakens an economy. Not only have 1.2 million private-sector jobs disappeared since last August, but with them more than $52 billion in wages and salaries. If that money had been earned and spent instead, the recession might never have occurred.

Somehow, the spending has to resume for the recession to end. Maybe a few million consumers will dig reluctantly into savings to replace a dilapidated car or an old suit or to take a long-delayed vacation. Or maybe foreigners can be talked into importing much more of the output of American factories than they already buy. Still in the Woods

Only then might demand be sufficient to justify hiring again at retail stores, auto showrooms, restaurants, appliance outlets and, above all, factories. The rehired workers, in turn, would use their wages to multiply spending, and the recession would end.

"Until you see the employment upturn, you don't know you're out of the woods," said Alan Blinder, a Princeton University economist.

Some economists already see signs of enough sales to get hiring going again. Sales of American-made cars, for example, have reportedly risen in recent weeks to the point that cars are being sold faster than they are being manufactured. If such sales hold up, car manufacturers will soon have to increase production to satisfy the new demand, rehiring enough people to assemble the extra cars.

The manufacturers will not be able to wait because auto dealers have no big inventories to draw on. Neither, for that matter, do clothing stores or appliance dealers or numerous other businesses. For many economists, the unusually small inventory backlog in this recession justifies optimism that the upturn can come quickly -- if people would only be willing to buy again.

"You can't have an economic upturn until jobs increase, but powerful forces are in place to bring about the turnaround," said Stephen S. Roach, senior economist at Morgan Stanley & Company. "The main one is the low level of inventories."

Whatever the forces, the rehiring has not yet materialized. Quite the contrary, 125,000 manufacturing jobs disappeared last month and for those who were left on the job, the number of hours worked each week declined. The Labor Department data painted similar pictures for retailers, wholesalers, airlines and the trucking, banking, real estate and finance industries. Only health care, government and food processing showed much job growth, the latter apparently to meet the needs of American forces in the Persian Gulf, said Thomas Plewes, an associate commissioner of the Labor Department's Bureau of Labor Statistics.

Another troubling statistic also surfaced on Friday. Usually, about 5 million Americans hold part-time jobs but would prefer to work full-time, if they could get such a job -- a preference that adds them in a fashion to the unemployment rolls. Their numbers rose to 5.5 million from last summer through January, and then in February alone the number leaped to 6 million. Economists wondered if so huge a one-month jump was a statistical error, but Mr. Plewes said that the number of "involuntary part-timers" has jumped similarly in the past.

The 6 million figure was projected from the Labor Department's February survey of 60,000 households. "Part-timers who really want to work full-time often take a while to admit this to us," Mr. Plewes said.

Still, as gloomy as the February numbers are, they might be out of date. For one thing, the data were gathered during the week of Feb. 12, before the gulf war ended, and consumers perhaps became more willing to spend. For another, recessions end when output -- at factories, stores, restaurants, even law firms -- rises, and that can sometimes happen without raising employment levels, said Lawrence Katz, a Harvard University labor economist.

An auto manufacturer, for example, might increase efficiency by replacing two assembly-line workers with an engineer or a computer specialist. National income might rise, or at least not fall, because the engineer might be paid as much as the two line workers combined.

Some of this occurred in the 1980's and also in the current recession, as hundreds of companies became more efficient. And with this in mind, many forecasters said they would have declared the recession near an end last Friday if no more than 100,000 jobs had disappeared. Instead, 208,000 were lost in the private sector, and there was a net loss of 185,000 when the rise in government employment is included.

"The bottom line for the economy is income, and that still means jobs and hiring," Mr. Plewes said.